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Leaked deck raises questions over Stability AI’s Sequence A pitch to buyers

Leaked deck raises questions over Stability AI’s Sequence A pitch to buyers

2023-04-23 15:40:49

When generative AI startup Stability AI raised a $101m Sequence A spherical in October 2022, many puzzled the place the corporate had come from. CEO Emad Mostaque — a former hedge fund supervisor — was a relative unknown within the machine studying neighborhood. But Stability seemed to be behind Steady Diffusion, one of the spectacular text-to-image fashions available on the market, able to rival even a Silicon Valley big like OpenAI.

It quickly emerged that it was, certainly, too good to be true. Stability hadn’t constructed the Steady Diffusion code, and it didn’t personal the mental property to it — however had created the easy-to-use interface on prime of the mannequin that was getting used around the globe to make photos.  

Now, leaked pitch slides and Telegram messages obtained by Sifted give some clues as to how the corporate went about elevating that bumper Sequence A.

In absence of proudly owning a generative AI mannequin of its personal, the leaked materials means that Stability was saying it had “co-created” merchandise developed by different generative AI organisations, like its rival Midjourney, when in actuality Stability had simply supplied compute grants — paying for cloud entry to the huge processing energy wanted to coach AI fashions.

The leaks come as Stability appears to lift a brand new spherical of funding that may likely be in the hundreds of millions of {dollars}, amid reports that it’s struggling to generate income.

The pitch deck

The leaked pitch deck, dated June 2022 — a number of months earlier than the Sequence A increase was closed — was despatched to Sifted by a former Stability worker, whereas a second worker who labored on the firm on the time of its circulation verified its authenticity.

When Stability went out to fundraise, the corporate hadn’t introduced any proprietary AI mannequin of its personal. Its flagship product on the time, DreamStudio, is a user-friendly software program for turning textual content into photos. DreamStudio is powered by the open-source AI mannequin Steady Diffusion — which was developed by researchers from LMU Munich and the startup Runway, and is free for anybody to make use of.

Stability didn’t develop the unique Steady Diffusion code and didn’t personal the IP to the mannequin.

Nevertheless, in its pitch deck, together with highlighting the strengths of DreamStudio, Stability mentioned it had “co-created” different merchandise with a number of generative AI startups, together with AI textual content and picture era platform NovelAI and text-to-image generator Midjourney.

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One of many slides in StabilityAI’s pitch deck exhibiting its relationships with different AI firms and fashions

Midjourney, which was based in March 2022 in Silicon Valley, competes straight with Stability’s DreamStudio. Sifted reached out to Midjourney and NovelAI for remark.

Sifted requested Stability what the corporate meant by “co-creating” merchandise. A spokesperson mentioned the corporate had supplied infrastructure within the type of compute grants to Midjourney, however didn’t elaborate on what it meant by “co-creating” merchandise.

Leaked Telegrams

It additionally seems that Mostaque was telling potential buyers that Stability had tens of millions of individuals utilizing its “fashions” — regardless of utilizing a third-party mannequin (Steady Diffusion) to energy its then sole product, and never having introduced any of its personal AI fashions but.

Forward of the funding spherical, Mostaque despatched a message in a Telegram group titled “Development Spherical” which seems to stipulate a change within the firm’s messaging to buyers. In it, he says that “the straightforward narrative is that 5m persons are utilizing our fashions now”. 

Mostaque’s messages got here whereas Stability was nonetheless assembly buyers to lift its Sequence A spherical

Stability informed Sifted ‘our fashions’ referred to fashions developed in home or underneath its umbrella of analysis hubs for which it had supported. This help included offering a platform for the analysis and coaching of the fashions in addition to compute energy.

This messaging, conflating Stability’s compute grants with possession of the fashions, is per a presentation that Mostaque gave at an occasion saying Stability’s Sequence A. 

“Lots of people see us and so they’re like ‘Oh they’re the picture guys, they make fairly footage.’ No,” Mostaque mentioned within the presentation, earlier than highlighting the successes of “our communities”. One in every of which was EleutherAI, he says, which “does language fashions… they got here up with GPT-Neo and GPT-J”.

Stability funded a few of EleutherAI’s analysis, however has no IP possession of fashions like GPT-Neo and GPT-J. When Sifted requested a former EleutherAI member about what official affiliation there was between Stability and EleutherAI, they mentioned: “None.”

Sifted reached out to EleutherAI for remark. Stability referred Sifted to EleutherAI’s “about” page, the place the corporate is listed as a donor.

The Steady Diffusion backstory

Whereas Stability did not personal any rights to the Steady Diffusion AI mannequin, it was carefully concerned with making it extra highly effective. The Steady Diffusion code was released by researchers at LMU Munich in April 2022. It wasn’t till summer time that yr that Stability approached the crew, providing to supply the researchers with compute credit to coach it on extra knowledge. Nevertheless, that didn’t give the corporate any possession over the outcomes.

Mostaque was interviewed on a number of YouTube channels forward of the Sequence A announcement

Earlier than Stability’s funding spherical, Mostaque toured tech-focused podcasts and YouTube channels. In September final yr he informed the Narratives podcast that his firm had “spear-led” Steady Diffusion. Whereas he was cautious to not explicitly take sole credit score for the AI’s improvement, he equally didn’t appear to make a lot effort to appropriate some deceptive framings.

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Sifted requested the producers of Narratives and two different podcasts if Mostaque or Stability had reached out to recommend amending the titles of the episodes. Stability declined to remark.

It was solely after the October funding spherical that Mostaque took to Twitter to state clearly that it was really a crew of researchers from LMU Munich that had developed Steady Diffusion, not Stability itself. 

Björn Ommer, who leads the lab at LMU which developed Steady Diffusion, tells Sifted he discovered it fascinating how the messaging switched.

“As soon as he had this cash he turned a bit clearer who really developed Steady Diffusion and that his firm didn’t personal the IP,” he says. “Now we come to the fascinating factor — in the event you’re working an organization that’s elevating a Sequence A and pushing for some huge cash and your VC guys realise that you just don’t personal any IP, that most likely makes it a bit tough.”

Stability informed Sifted that the buyers that backed the corporate had been absolutely conscious of Steady Diffusion’s IP possession.

“Stability AI was a collaborator within the improvement of the primary launch of Steady Diffusion, alongside the Pc and Imaginative and prescient studying group at LMU, and Runway,” a Stability spokesperson informed Sifted. “The small print of this collaboration have been shared publicly on Steady Diffusion’s Github and Stability AI’s web site since its launch.”

What’s subsequent?

This week Stability AI launched its first proprietary AI mannequin, a language mannequin dubbed StableLM. 

Stability mentioned it could be promoting “fashions as a service” to organisations who need non-public AI fashions skilled on their very own knowledge as a method of monetising its product.

The corporate didn’t reply to questions on fundraising or runway.

This week’s launch is undoubtedly an enormous second for Stability, however the models-as-a-service enterprise is a aggressive one. Together with the large tech gamers, there are European companies like Aleph Alpha and Silo AI who do related work. The large query shall be whether or not Stability can safe recent funding whereas it really works to monetise this new product.

Tim Smith is a senior reporter at Sifted. He covers deeptech and all issues taboo, and produces Startup Europe — The Sifted Podcast. Comply with him on Twitter and LinkedIn

*Sifted made a correction on Saturday 22 April, changing:

“Stability informed Sifted that by “our fashions”, Mostaque meant to seek advice from fashions which had been developed with assist from compute supplied by Stability.”

With: “Stability informed Sifted ‘our fashions’ referred to fashions developed in home or underneath its umbrella of analysis hubs for which it had supported. This help included offering a platform for the analysis and coaching of the fashions in addition to compute energy.”

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